Initial Exchange Offerings (IEOs) may be headed for a more complicated scenario than the ICOs. ICOs got banned in a number of countries, including China and South Korea for poor regulations. When IEOs were invented, they proved to be the tie-breaker, especially in these countries.

However, the fact that the exchanges offering the IEOs act like brokers by bringing the development team and investors together, these exchanges could be headed for a legal confrontation with the US Securities and Exchange Commission (SEC).

Lately, a senior official indicated that the crypto exchanges that are offering IEOs could be violating the U.S. securities laws. The official argues that if an exchange has a set fee for listing an IEO and either the issuer of the token or any of the investors is from the US, the exchange can best be classified as Security Dealer (better referred to as a broker-dealer) under the US securities laws.

And according to the Law, security dealers engaging in broker-dealer activities should be registered and licensed as broker-dealers, national securities exchanges or alternative trading systems (ATS). But unfortunately, none of the exchanges that have listed IEOs in the past have met with these requirements despite the fact that a significant amount of IEO investors come from the United States.

At the look of things, this could be signaling the wake of a SEC crypto-crackdown targeted towards IEOs. However, we are yet to see if the exchanges interested in offei8rng the IEO and targeting US citizens shall choose to comply with the SEC regulations or choose to leave the US market.

Cryptocurrency startups have found a number of ways for raising capital. ICOs was the first method to be invented. However, ICOs have ended up being shrouded by lots of scams due to lack of proper regulations.

IPOs and STOs were among the first methods to be invented alongside ICOs. However, these two (STOs and IPOs) have not become as successful as the ICOs due to the strict regulations set by the regulatory authorities like SEC.

The ease with which ICOs are operated attracts a lot of investors and inventors were forced to come up with a way to make the ICOs scam proof. They had to come up with a formula to make the ICOs crowdfunding possible, even in countries like China, where ICOs are banned due to lack of proper regulation formulas. This is basically what led to the invention of IEOs.

IEOs employ the same working principles as the ICOs and thus maintains the simplicity with which they are carried out. However, by using the crypto exchange Launchpad, they make them safer compared to the ICOs since the development team has to meet a number of requirements for their project’s token sale to be listed on the exchange. Therefore, the issue of scams in IEOs is greatly minimized since they would keep the reputation of the crypto exchanges at risk.

Nevertheless, although the IEOs make it more interesting and safer for investors, the investors still carry the bulk of the risks; the project may pick or fail. The fact that a project gets funded through a crypto exchange Launchpad does not mean that the project will automatically become a success.

However, we cannot refute the fact that projects that have done their crowdfunding through IEOs have ended up hitting their target within a very short timeframe compared to the ICOs which take months and at times even end up missing their targets. We have seen projects hit their targets even in minutes.

In IEOs, the target investors seem to be guaranteed. The exchange users, of course, trust their exchange platform and tend to take up every opportunity that comes up on the exchange. Therefore, if the exchange lists an IEO, the users will be fighting to invest in it. But the question is; how sure are the investors that the project they invest in will succeed and become profitable.

IEOs are still not very reassuring just like the ICOs. Investors can only hope and pray that the project team does its best to ensure that the project picks to give the tokens more value than the value at which they purchased it. In a way, they cannot be compared to the STOs, where the investor gets a share of ownership of the project.

At the moment IEOs seem to be carrying the day and developers can depend on them for raising funds. However, for investors, the rise and fall of ICOs should serve as a lesson. Investors should always ensure due diligence whenever they are choosing which project to invest in.

It is true that scamming is greatly reduced in IEOs, but even genuine projects flop if they were not well planned. Investors should do thorough research about the projects before investing their money.

What does the future hold for IEOs?

One thing is for sure; cryptocurrency exchanges are here to stay. In an actual sense, we should expect to see more and more exchanges entering the market.

Blockchain and cryptocurrency startups have gathered momentum and the easiest way for them to raise capital is by depending on the general public for funding. The banking sector is too costly for them. Blockchain startups cannot afford bank loans since the projects may not thrive as anticipated since they wholly depend on how the general public receives them.

From an expert view, IEOs will most definitely outstay the ICOs. Also, more countries are set to embrace IEOs compared to ICOs since they are offered through exchanges which are easily regulated by the regulatory bodies.

IEOs, therefore, have no problem with complying with the set laws and governments won’t have to come up with new rules to regulate them.

Another giant is coming up in the cryptocurrency arena; by the name of Initial Exchange Offering (IEO). Following the unprecedented rise of fame of ICOs in 2017 and the subsequent turmoil surrounding their regulations and scamming incidences, developers seem to have found another better way of raising funds for their blockchain and cryptocurrency projects through Initial Exchange Offering (IEO).

What is IEO?

Initial Exchange Offering is an ICO that is run through a Cryptocurrency Exchange Launchpad. Therefore, the Launchpad act as the intermediary that conducts the token sale.

Compared to ICOs, IEOs have succeeded in raising staggering amounts of funds in very short time spans. For instance, BitTorrent was able to raise $7.2 million in just 18 minutes through an IEO conducted via Binance Launchpad. Fetch.AI also raised $6 million in just 22 seconds via Binance Launchpad.

From statistics like in the examples highlighted above, investors seem to be more confident buying tokens via exchange platforms like Binance because they are certain that the exchanges are regulated and any activity that the exchanges are involved in must be legal and well analyzed by experts.

But how does the Launchpads work?

Launchpads are basically platforms that cryptocurrency exchanges have fostered to enable blockchain projects to offer their tokens for sale directly to the exchanges’’ customers. In the process, the buyers (Investors) of the tokens end up buying tokens from projects they are sure they are not scams.

To be allowed to use the exchanges’ launchpads, the blockchain developers have to enter an agreement with the exchanges so that their tokens can be initially placed on the exchanges.

Then, before any token sale is done on an exchange, the exchange performs a thorough audit on the project to find out its viability and potential of the token. The exchanges also directly manage the token sale.

The main participants of IEOs are the project developers, Exchanges and investors.

Through the IEOs, the exchange platforms get revenue from a listing fee for the token placement and also attract more customers since people will join the exchanges to participate in the IEOs and eventually stick in the exchange for other trading activities.

For investors, they get a reliable investment opportunity. It is hard to get a scam token sale being conducted via an exchange platform. Therefore, the investors can rest assured that they are investing in a genuine project that is well vetted.

Benefits of investing in an IEO

For the project developers, they are assured of a more legitimized token sale since they get the backing of the crypto exchanges who investors are sure to have done their due diligence on the integrity of the project. On the same hand, projects have their tokens exposed to a larger customer base since exchanges already have a wide customer base. The large customer base makes it possible for the projects to raise very large sums of money within a short timeframe.

Investors, on the other hand, get an opportunity of investing in a token that has immediate liquidity. They can also pay for the token through a variety of methods that are already established in the exchange platform.

Conclusion

Despite the fact that IEOs are not scams, it is good to remember that the investors are the ones left with the short end of the stick. They are the once that face the most risk in IEO. They can only trust the exchanges to be good at what they do.

The IEO policies also differ from one exchange to the other and the problems faced in one exchange may not be similar to those faced on another exchange platform.

By the look of things, one may argue that this is true. Initial Coin Offering (ICOs) were doing very well in 2017 and early 2018 and many startups were able to collect billions of funds as capital to get their projects started. However, to date, no proper regulations have been put in place to monitor how the ICOs are carried out.

ICOs lack a third-party overseer. Therefore, scammers have found it to be a great opportunity to reap from the uninformed investors. As it stands, basically anyone can launch and run an ICO provided they are able to convince people that they have something they want to do and money is the hindrance.

Some governments like those of China and South Korea have banned ICO completely making it very hard for the genuine startups to fundraise through the ICOs.

The introduction of Initial Exchange Offering (IEO) was a game-changer. Startups even in those countries that had banned ICOs can now easily raise funds through crowdfunding since they shall not be breaking any laws.

In addition, though both ICOs and IEOs share some degree of rationales, in IEO, there is an overseer who is normally the exchange platform through which the IEO is being run.

For a development team to run any IEO, they have to meet and comply with the requirements set by the exchange. Therefore, the exchange acts as a cushion for investors. Investors are guaranteed that whatever the exchange is offering is well cross-examined and that it is not a scam. As a matter of fact, if the IEO was to be a scam, it would ruin the reputation of the exchange which still needs to continue with its activities after the IEO.